Education
Life Settlement Glossary
Plain-language definitions of the most common life settlement and life insurance terms. No jargon, no confusion — just clear answers.
(321) 270-0279Life settlements and life insurance come with a lot of specialized vocabulary. We've put together this glossary to help you understand the key terms in plain, simple language. If you have a question about a term not listed here, contact us — we're always happy to explain.
Accelerated Death Benefit
A provision in some life insurance policies that allows you to receive a portion of the death benefit while you are still alive, typically if you are diagnosed with a terminal illness. This is built into the policy and does not involve selling it. Not all policies include this feature, so check with your insurance company or agent to find out if yours does.
Beneficiary
The person (or people) named in your life insurance policy who will receive the death benefit when the insured person passes away. You can usually change your beneficiary at any time. In a life settlement, the buyer becomes the new beneficiary after the sale closes.
Broker (Life Settlement)
A licensed professional who represents you, the policy seller, in a life settlement transaction. A life settlement broker shops your policy to multiple buyers to get you the highest possible offer. Unlike a provider (buyer), a broker works for you and has a fiduciary obligation to act in your best interest.
Cash Surrender Value
The amount of money your insurance company will pay you if you voluntarily cancel (surrender) your policy. This is typically a small fraction of the death benefit — often just 10 to 20 percent. In a life settlement, you can usually receive significantly more than the cash surrender value by selling on the open market.
Cash Value
The savings component that builds up inside certain types of life insurance policies, such as whole life and universal life. Cash value grows over time as you pay premiums. You can borrow against it or withdraw from it, but doing so may reduce your death benefit.
Convertible Term Policy
A term life insurance policy that includes an option to convert it into a permanent (whole life or universal life) policy without taking a new medical exam. This conversion feature can make a term policy eligible for a life settlement, because permanent policies are what buyers are looking for.
Cost of Insurance (COI)
The actual cost charged by the insurance company for providing the death benefit coverage inside a universal life policy. The COI typically increases as you get older. Rising COI is one of the main reasons universal life premiums can increase over time and become difficult to afford.
Death Benefit
The amount of money the insurance company pays to the beneficiary when the insured person passes away. This is sometimes called the face value or face amount. In a life settlement, buyers consider the size of the death benefit as one of the key factors in determining how much to offer for your policy.
Estate Planning
The process of organizing your finances, property, and legal documents to ensure your assets are distributed according to your wishes after you pass away. Life insurance is often a part of estate planning. When estate plans change, a policy that was once essential may no longer be needed — which is one common reason seniors explore life settlements.
Face Value
The dollar amount of the death benefit stated on your life insurance policy. For example, if you have a $500,000 life insurance policy, that is the face value. Face value is one of the most important factors in determining whether a policy qualifies for a life settlement and how much it may be worth.
Fiduciary
A person or organization that is legally and ethically required to act in your best interest — not their own. In the life settlement world, a fiduciary broker is legally obligated to represent you, the seller, and to work toward getting you the highest possible offer. This is a critically important protection for consumers.
Grace Period
A window of time (usually 30 to 60 days) after a missed premium payment during which your life insurance policy remains in force. If you pay the overdue premium within the grace period, your policy continues as normal. If you do not pay, the policy may lapse and you could lose your coverage entirely.
Guaranteed Universal Life (GUL)
A type of universal life insurance that guarantees the death benefit will remain in effect as long as you pay the required premiums — even if the cash value drops to zero. GUL policies are designed primarily for the death benefit rather than cash value accumulation, and they are commonly seen in life settlement transactions.
Indexed Universal Life (IUL)
A type of universal life insurance where the cash value growth is tied to the performance of a stock market index, such as the S&P 500. IUL policies offer potential for higher returns than traditional universal life, but with more complexity. These policies may qualify for a life settlement depending on the specifics.
Insured
The person whose life is covered by the insurance policy. The insured is not always the same person as the policy owner. In a life settlement, the age and health of the insured are two of the most important factors that determine the value of the policy.
Lapse
When a life insurance policy is terminated because premiums were not paid on time and the grace period has expired. When a policy lapses, you lose your coverage and your beneficiaries receive nothing. Thousands of seniors let valuable policies lapse every year — a life settlement can be a better alternative.
Life Expectancy
An estimate of how many years a person is expected to live, based on their age, health, and medical history. In a life settlement, an independent underwriter reviews the insured's medical records to determine life expectancy. This is one of the most important factors in how buyers price their offers.
Life Settlement
The sale of an existing life insurance policy to a third-party buyer for a lump-sum cash payment that is greater than the cash surrender value but less than the death benefit. The buyer takes over premium payments and eventually receives the death benefit. Life settlements are legal, regulated in 43 states, and give seniors a way to unlock the real market value of a policy they no longer need.
Life Settlement Provider
The company or institutional buyer that actually purchases the life insurance policy in a life settlement transaction. Providers are typically large financial institutions, pension funds, or specialized investment firms. They are different from brokers — a provider represents the buyer's interests, while a broker represents yours.
Maturity
The point at which a life insurance policy reaches its maximum age limit (often age 95, 100, or 121, depending on the policy). When a policy matures, the insurance company pays out the face value or cash value to the policy owner. Some seniors discover their policies are approaching maturity and explore life settlements as an alternative.
Policy Loan
A loan you take from your insurance company using the cash value of your life insurance policy as collateral. Policy loans reduce the death benefit if not repaid. Outstanding policy loans can affect the value of your policy in a life settlement, because the buyer would need to account for any existing loan balance.
Policy Owner
The person or entity that owns the life insurance policy and has the legal right to make decisions about it — including selling it in a life settlement. The policy owner is not always the same person as the insured. Only the policy owner can authorize the sale of a policy.
Premium
The payment you make to your insurance company to keep your life insurance policy in force. Premiums may be paid monthly, quarterly, or annually. In some policies (especially universal life), premiums can increase over time. Rising premiums are one of the most common reasons seniors explore life settlements.
Rescission Period
A legally required window of time after a life settlement closes during which you can change your mind, cancel the sale, and get your policy back. The rescission period varies by state but is typically 15 to 30 days. This is an important consumer protection that gives you time to reconsider after signing.
Secondary Market
The marketplace where existing life insurance policies are bought and sold between policy owners and third-party investors. This is where life settlements happen. The secondary market creates competition among buyers, which drives up the price you receive compared to simply surrendering your policy to the insurance company.
Surrender Charges
Fees charged by your insurance company if you cancel (surrender) your policy, especially during the early years. Surrender charges reduce the amount of cash value you receive. These charges typically decrease over time and may eventually disappear. They are one reason the cash surrender value is often much lower than the policy's market value.
Term Life Insurance
A type of life insurance that provides coverage for a specific period of time — such as 10, 20, or 30 years. If the insured passes away during the term, the beneficiary receives the death benefit. If the term expires, there is no payout. Standard term policies generally do not qualify for a life settlement, but convertible term policies may.
Universal Life Insurance
A type of permanent life insurance with flexible premiums and a cash value component that earns interest. Universal life policies are among the most commonly sold in life settlements. However, their premiums can increase over time as the cost of insurance rises, which is why many seniors explore selling them.
Viatical Settlement
Similar to a life settlement, but specifically for a person who is terminally ill — typically with a life expectancy of two years or less. Viatical settlements have different tax rules and regulations than life settlements. Citizens Life Group specializes in life settlements (for seniors who are not terminally ill), not viatical settlements.
Whole Life Insurance
A type of permanent life insurance that provides coverage for your entire lifetime, as long as premiums are paid. Whole life policies build cash value at a guaranteed rate and have fixed premiums. They are commonly eligible for life settlements, especially when the policyholder no longer needs the coverage.
Learn More
Now that you know the terminology, explore these guides to learn how life settlements work and whether your policy qualifies.
What Is a Life Settlement?
A complete guide to how the secondary market for life insurance works.
Read more →Do I Qualify?
Find out if your policy meets the basic requirements for a life settlement.
Read more →How Much Is My Policy Worth?
Learn what factors determine your policy's value in the secondary market.
Read more →Frequently Asked Questions
Answers to the most common questions about life settlements and the process.
Read more →Have Questions? We Speak Plain English.
If anything on this page is unclear — or you want to know what your policy might be worth — we're happy to talk. No pressure, no obligation.